What Makes the Divergence between Cross-border VCs and Domestic VCs Persist?: in the Context of the Chinese VC industry

Abstract

This project introduces the recent development of the Chinese VC industry. One characteristics of the Chinese VC market is that both crossborder VCs and local VCs play significant roles. The two types of VCs show clear difference in terms of invested sectors and geographic regions. This paper provides a literature review to address some mechanisms leading to the divergence. It also documents two mechanisms not addressed in the extant literature through interviews with local investors and startups: the rigidity of a typical startup's fund structure and the types of limited partners of VCs explain why the divergence takes place in the first place and why the dissimilarity is likely to persist. The simple empirical analysis shows that cross-border VCs are more likely to invest in market-oriented high-tech sectors and regions with relatively well-established market institutions, while local VCs tend to invest in fields and regions of the nation's strategic focus. [ABSTRACT FROM AUTHOR] Copyright of Seoul Journal of Business is the property of Seoul National University, College of Business Administration and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)